AMP stands up for life sale

AMP has defended the decision to sell its life insurance arm, telling shareholders incoming CEO Francesco De Ferrari has been given a mandate to establish a new strategic direction.

The group says it is committed to returning cash from the AMP Life sale to shareholders.

It will also remove $40 million in annual stranded costs by the end of the 2020 financial year and offset the impact of unwinding distribution arrangements in its wealth management business by finding new revenue or mitigating costs.

AMP says the Australian life industry’s profitability is deteriorating, and the business has been affected by structural changes in the global industry and regulatory environment.

A $22 million claims experience loss in the third quarter is evidence of claims risks and earnings volatility.

And there is competition from insurers with lower capital costs, more scale and greater diversification, it says.

Also, significant investment in the business would be needed to meet new regulations.

AMP says the performance of its New Zealand wealth protection business is declining and vulnerable to future deterioration in the local life insurance market.

In the six months to June AMP made an underlying profit of only $120 million across its Australian and New Zealand wealth protection businesses.